ROII shows your buyer the profit he or she makes on each dollar they invest in stocking your product over the course of a year. And given a little competitive intelligence into how much your retailer is marking up your competitor's products and how fast it is selling-both bits of knowledge that a good account manger can often uncover in discussions with a buyer-it can also be your ticket to getting more peg hooks devoted to your product line on a crowded retail shelf.
Return on inventory investment - ROII, or GMROI, if you're speaking to Walmart - is calculated this way. ROII = (Markup x inventory turnover).
* Know your enemy's turns. If you understand how fast your inventory turns at retail versus your competitor, you can adjust your margins to deliver a superior ROII calculation. If your competitor chooses to reduce their prices to meet you, that's a game they'll have to play over a larger base of business for a prolonged period of time.
*Know your enemy's margins. If you know the comparative margins between your brand and your competitor, you can still deliver a superior ROII by increasing your inventory turns. Your turns will be a function of the amount of inventory your retailer carries - the number of facings they have on the shelf plus inventory - and the speed at which consumers pull them off those shelves and put them in their shopping baskets. Ads, temporary price decreases, displays, value added promotions, and other means of driving demand - not to mention stronger brand loyalty in general - will all, in aggregate, improve your turns.
ROII tells your channel partner how much money they are making one each dollar invested in your inventory every year. In sophisticated retail environments where you're selling an inventoried product, this is the calculation you'll use to get in and get more - at the competitor's expense.
Contributed by Stephen Denny, Keynote Speaker & Author of Killing Giants, 10 Strategies to Topple the Goliath in Your Industry.